Friday, October 30, 2009
The company is still looking at a year end deadline to justify its AMEX stock listing.
Noble has leases in the Caspiana Field of Louisiana, where it is a minority partner) and in Texas, where it is a 60% partner with Petrohawk (although Petrohawk is the operator on the first four wells - is Petrohawk teaching Noble how to drill shale???). The map below shows the location of Noble's acreage.
In the Haynesville Region of E. TX and N. LA, inclusive of other fields, the count was up by two, +2 in E. TX and -1 in N. LA.
- CHK has 510,000 net acres (about 620,000 gross) and targets approximately 3,700 potential wells
- The company has completed 137 horizontal wells
- CHK currently operates 35 rigs, the most it operates in any play (the Marcellus Shale is second with 20)
- The 2010 plan is to operate about 40 rigs and drill around 190 wells
- The company is still using a 6.5 Bcfe EUR (estimated ultimate recovery) in its reserve and return calculations.
There is not a whole lot of new information, but looking back I haven't posted much summary data for the company in a while.
One thing the article pointed out is that power generators buy 90% of their coal through one to two year fixed contracts. Since power generation is about the only customer for coal these days, it leads to less short-term price volatility, but it can lead to big swings as the pricing power swings between the customer and the producer. Producers buy about half of their natural gas supplies on the spot market. Over the summer, spot gas was cheaper than coal on an equivalent energy output basis, so many electricity producers used less coal and bought more gas. Unfortunately for the power generators, the coal contracts are pretty much set, so the hoppers of coal keep coming. As a result of the partial switch to gas and the lessened use of electricity in the recession, the power generators are left with huge stockpiles of coal. As the chart below shows, stockpiles at power generation facilities are much higher than they have been for the past five years.
As the chart shows, a correlation appears once the spot price for gas drops. This quickie analysis points to another month or two of rising coal stockpiles, but it also shows the temporary nature of this fuel switch, also pointed out in the DP article. Once gas prices start their seasonal rise as gas storage begins to deplete, the power generators likely will switch back and start whittling down their mountains of stockpiled coal. If, however, natural gas production increases from shale keep the spot price of gas low or if Congress passes a meaningful carbon reducing energy policy, coal producers might be in for a tough time when it comes time to renegotiate supply contracts with power generators.
When I was in high school I worked summers at a geology and petroleum engineering consulting firm. One of my more tedious tasks was to catalog the thousands and thousands of blueline Schlumberger log reports. Those logs were folded accordion style and could be longer than 20 feet. I used to write the S/T/R numbers on the special small file folders and then file them in the appropriate drawer. I have a vivid memory of the geologists sitting in their offices poring over those reports with a red pencil in one hand circling particular jagged lines that caught their attention as they flipped the folds. I was always fascinated that they could see important data in all those lines. It just looked like static to me. It still does. I'm just glad images like those below mean something to those geologists.
Thursday, October 29, 2009
In its most recent announcement, Cabot touted its first horizontal well, operated by Common Resources, in the County Line Field that has an initial production rate of 21.0 MMcf/day at a flowing casing pressure of 7,800 psi. The IP rate was stated at eleven days, but it might have been a peak rate - the relase was unclear. The release and the conference call were a little short on specifics. The well was not named (we'll find out eventually), nor was the exact location specified (based on a map from an earlier Cabot presentation, the new well should be "AMI #1" which is located in San Augustine Co.). The well cost approximately $10 million and had 14 frac stages.
Common Resources has completed a couple of big wells in San Augustine Co. over the past few months, Red River 164 #1 (13.4 MMcf/day, reported in August 2009) and Red River 619 #1 (16.7 MMcf/day, reported October 2009). I'm not sure if the second of these wells is the one Cabot refers to or if it is another one. Unfortunately, Common Resources is a private company and is not compelled to release lots of specifics.
I also noted the interview below with Dr. Yergin from the CleanSkies.org web site. It covers many of the same points in the article.
Take a look at the article. It's a good read and is not as long as you might think. While my primary focus here at haynesvilleplay.com is natural gas, there is no avoiding oil, which has been the biggest player on the world energy scene for more the past century. Just as Keith Jackson used to say every January about the Rose Bowl, it's "the grandaddy of them all," and this article helps put the larger context of oil into perspective.
Kennedy suggests the pairing would help both parties, and I agree. Wind and solar need natural gas. No matter how much we spend on these alternative sources, they will always have the problem of intermittency, at least until better batteries or other energy storage mechanisms are perfected. Natural gas is a superior backup fuel to coal because natgas plants can fire up and shut down much more quickly than coal plants, and natgas is a hell of a lot cleaner than coal. The last thing alt-energy providers want to do is depend on dirty coal as a backup.
At the same time, natural gas needs alt-energy’s help because alt-energy is on the upswing in this country. It is much more popular than legacy energy sources, especially in Washington DC. Additionally, natgas has always been in the shadow of oil and coal. Nat gas needs to be independent. It sure does make a lot of sense for natural gas to hang around with the new popular kid at school, especially if the relationship benefits both parties.
The Enterprise/Duncan project is different from many of the new Haynesville takeaway projects in that it moves the gas to the south. Enterprise suggests that it would give its users access to "more favorable pricing points" in south Louisiana.
Yesterday, Entergy filed a petition with the Louisiana Public Service Commission to officially cancel the conversion officially. Now comes the fun part of trying to recover the $300 million or so of project costs from rate payers.
Wednesday, October 28, 2009
The report concluded that while the Arctic region holds approximately 22% of the world's undiscovered conventional oil and gas reserves, the downside for the area is 1) it is mostly natural gas, which is hard to transport, 2) development be more costly, difficult and time consuming, 3) there are Arctic sovereignty claims that likely will delay development and 4) protecting the natural environment will be expensive. The report notes that perhaps the biggest issue impeding Arctic natural gas development is the emergence of enormous quantities of shale gas in the Lower 48 and other parts of the world.
An article yesterday from the Alaska Dispatch cited the report and the potential negative impact on the AGIA pipeline. It also had an interesting discussion of the impact of rising natural gas prices, suggesting that a spot market price over $6 might cause domestic producers to flood the market with pent-up supply, causing another price drop. Ultimately, it looks like the price of gas will stay relatively low for a few years to come until a significant upward shift in demand occurs.
Sounds like a win for the U.S. domestic natural gas industry to me.
Close of business today marks the beginning switch to the next month futures contract (from November to December), so the "NYMEX Futures" price suddenly jumped from around $4.29 this afternoon (still that price on the ticker to the right) to around $5.08 (at Bloomberg), but it still shows a loss of 4%. It should straighten out tomorrow.
A fairly big battle has been waged in the Marcellus Shale in the past few months over natural gas drilling and the potential impact to drinking water. The pressure was especially intense in New York City because the high quality of the city's water has allowed the city to defer billions of dollars in infrastructure improvements. Any damage to the watershed would have a huge negative economic impact for the city and the state.
Chesapeake's decision was very smart, both from a PR and an operating perspective. The lease in question only covers about 5,000 acres acquired through the purchase of Columbia Natural Resources a few years ago. Why would Chesapeake want to mess around with a tiny amount of lesser acreage in New York when it can invest its resources in more productive land in Pennsylvania?
The decision might embolden environmental and political activists in the fight against natural gas, but it might be the first step to a larger compromise. The states in the Northeast need companies like Chesapeake to develop the Marcellus Shale, especially in these tough economic times. Environmental protections are also important, at least psychologically, for the citizens. Ultimately there has to be a balance, but unfortunately a compromise might leave everyone unhappy.
Chesapeake is a headstrong company that hates to lose, but CEO Aubrey McClendon is smart enough give up a pawn to protect the queen.
Tuesday, October 27, 2009
The company announced also announced some completions. The well below was already reported by DNR:
- NAC 36 H #1: 23.7 MMcf/day peak 24 hour IP; Woodardville Field, Bienville Parish, Sec. 36/Township 15/Range 10; serial #239751 (This was already reported by DNR as 17.223 MMcf/day on 18/64" choke at 8,300 psi)
The company reported three new completions on its existing leasehold. All three wells listed below are in the Thorn Field of Red River Parish:
- Sample 10 H #1: 22.6 MMcf/day peak 24 hour IP; S10/T14/R11; serial #239374
- Sample 10 H #2: 21.5 MMcf/day peak 24 hour IP; S10/T14/R11; serial #239685
- Baker 7 H #1: 24.4 MMcf/day peak 24 hour IP; S7/T14/R11; serial #239576
The new wells are reflected on the list of Louisiana completions.
Somewhere in the list of things I am not is movie critic, but just like a geophysicist who will opine on geopolitics, that won’t stop me. I’ll try to avoid any spoilers because I hope everyone has the opportunity to see the film, as it was very well done. Well shot, well edited and well written. The film professor on the panel after the showing said that it was one of the best documentaries she has seen for the past five years. Since everyone with a video camera is now a documentarian, the level of documentary quality has gone downhill. But “Haynesville” is a professionally made movie that is not to be confused with much of the dreck out there today. Bottom line: it is a very good film.
The story followed three individuals in different circumstances and showed how their lives changed over the course of about six months (watch the trailer for more on the specifics - I won't spoil it). The stories themselves were told objectively and they avoided many traps that would have made them predictable. The film used the development of a gas well from land clearing to initial production to help pace the story. (The well was called Grant #1, but I might have miswritten the name or it might go by another name because I can’t find any wells named Grant in state records.)
The film also included interviews with many experts in the areas of conventional and alternative energy. The production has a negative slant on coal. It doesn’t completely slam coal, but it also doesn’t offer an opposing position favoring coal other than the economic argument that the stuff is simply cheap. On the whole, you can tell the filmmaker has an opinion, as a documentarian probably should, but he doesn’t bludgeon the viewer with it. There is still enough room to have your own thoughts. As Gregory Kallenberg said in the discussion afterward, he wanted to show that “energy is complicated.” He did a good job of that.
I have to say that I was a little worried going in. Having watched the film trailer and processed it through my mental black box, I was expecting more of a melodrama that dwelled on negatives and attacked “The Man.” What I found was balanced and rather objective treatment of the development of the Haynesville Shale and how it fits into the big picture of energy, environment and geopolitics, all told through individual stories.
In terms of clarifying complicated concepts, the film did a great job. There were superb graphics and good explanatory notes. I might quibble with some of the numbers and descriptions used, but the general points were well explained.
One area that I wish the producers had explored more deeply in the film is the technology and expertise behind shale drilling. I realize you can’t put everything in a documentary, but viewers will not walk away understanding just how complex and expensive it is to extract gas from shale. They may be no dry holes in the Haynesville Shale, but the process of getting the gas out of the hole is not to be underestimated. I think this omission led to some misconceptions from the audience that this is Jed Clampett-easy (one of which is discussed in a separate post).
The panel discussion afterwards was also enlightening and brought up some interesting issues. Perhaps the most interesting concept came from political scientist Christopher Fettweis, who talked about the “resource curse.” This is an international phenomenon where countries that are resource rich end up worse off because wealth and power ends up in the hands of the few at the expense of the many. This is a cautionary tale for Louisiana, which has a history of squandering energy wealth at the expense of its population.
Prof. Fettweis mentioned Norway’s experience with North Sea oil wealth. When oil was discovered off the coast of Norway, the country set up a commission to investigate the “problem.” Ultimately, the majority of the wealth created by energy ended up in a trust for the benefit of all Norwegians.
I’m not naïve enough to think this will happen in Louisiana (or anywhere else in the U.S. other than Alaska), but it’s an interesting model. My fear is that we are too far gone to be able to constructively take advantage of our newfound energy wealth. First, given the deep recession, decisions are being made today with a short-sighted outlook. There is not much big picture, visionary thinking going on these days when politicians are trying to plug billion dollar budget holes. Second, because the Haynesville land rush happened so fast, the proverbial horse is out of the barn. Most of the good land prospective for the Haynesville Shale and the Middle Bossier Shale (which is just above the southern part of the Haynesville) has been leased and will be drilled so that it will be held by production. There are a few spots with un-leased land and a small percentage of leases will not be drilled before expiring, but the vast majority of productive land has been tied up for generations to come. Many people got raw deals, others got no deals. Unfortunately there are no do-overs.
One thing that deserves mention is the fact that it was an entirely Louisiana production, with nearly every aspect involving home grown talent and resources. I guess it’s more jobs and economic development created by the Haynesville Shale. The next trick is finding a screening of the movie. From New Orleans, it’s off to Europe for film festivals and special events. Hopefully it will get funding and support for a wider release. Sign up at the website (http://www.haynesvillemovie.com/) for updates.
Kudos to everyone involved in this independent film. I would recommend it to everyone, whether or not they have any interest in the Haynesville Shale or the energy industry.
One audience member in particular stands out. The man, a self-professed libertarian with a taste for “small government,” couldn’t understand why the state of Louisiana auctioned off leases for state owned land to drilling companies. He believed that the state itself should produce the fields and build the infrastructure, sort of a nationalized energy company. The panel was a bit dumfounded at the suggestion. I ended up in a conversation with the man after the screening. He told me that the state should also build pipeline infrastructure for everyone’s benefit and then put a high tax on gas production to encourage production (encourage?). He may have been off the wall, but I can’t help but wonder how many people are this misguided.
I also had to wonder how a self-declared Libertarian could advocate for the government producing its own gas, building pipelines for the benefit of producers and taxing gas at a high rate. Somewhere in Texas Ron Paul is violently convulsing.
Monday, October 26, 2009
The company also noted a couple of its favorite new completions:
- Caspiana 13-15-12 H #1: 20.1 MMcf/day (peak IP); Caspiana Field, Caddo Parish, Sec. 13/Township 15/Range 12; Haynesville reservoir B, serial #239256
- Bradway 24-15-12 H #1: 18.6 MMcf/day (peak IP); Caspiana Field, Caddo Parish, Sec. 24/Township 15/Range 12; Haynesville reservoir B, serial #239697
Congressional Natural Gas Caucuses have finally been created. The House caucus, which was formed last month and the group's first meeting starred T. Boone Pickens, of the Pickens Plan fame. The group was launched by Reps. Dan Boren (OK) and Tim Murphy (PA) and its current roster of 45 members is bipartisan in makeup, mostly from states with a strong interest in natural gas. North Louisiana Rep. John Fleming is a member. Here are good articles from the Shreveport Times and Pittsburgh Post-Gazette about the group's first meeting. Since there are 32 states that produce gas, the natgas caucus might have a strong voice if its members are well motivated.
The Senate Natural Gas Caucus was formed by Louisiana's own Sen. Mary Landrieu and Georgia Sen. Saxby Chambliss this week. (Kudos to my Sen. Landrieu for leading the effort and for encouraging bipartisan participation.)
The formation of Congressional caucuses is an important step in having a voice in Washington (or at least having someone to listen to you). It is especially vital because there has been an active Coal Caucus for years. I've noted the lobbyist's mantra before and it's never more true than it is today: "if you're not at the table, you're on the menu." Welcome to the table natural gas. Now let's see if you can get the waiter's attention.
Sunday, October 25, 2009
- Billy Rex Harper 15 H #1, Questar E&P: 16.057 MMcf/day IP on 17/64” choke at 7,000 psi; Woodardville Field, Bienville Parish, Sec. 15/Township 15/Range 9; Haynesville reservoir A, serial #239550
- DeSoto Oil & Gas Trust 18 #1, BEUSA Energy, Inc.: 0.44 MMcf/day IP on 12/64” choke at 1,000 psi (vertical); Grand Cane Field, DeSoto Parish, S18/T12/R14, Haynesville res. A, serial #237259
- Colvin-Craner HZ #2, Comstock Oil & Gas: 19.11 MMcf/day IP on 24/64” choke; Belle Bower Field, DeSoto Parish, S14/T12/R16; Haynesville res. A, serial #239539
- CPS Timberlands 28 H #1, KCS Resources (Petrohawk): 8.235 MMcf/day IP on 24/64” choke; Benson Field, DeSoto Parish, S33/T11/R 14; Haynesville res. A, serial #239162
- Conway Harris 15 H #1, EnCana Oil & Gas: 18.066 MMcf/day IP on 24/64” choke; Red River-Bull Bayou Field, Red River Parish, S15/T14/R11; Haynesville res. A, serial #239624
Saturday, October 24, 2009
Friday, October 23, 2009
I've already noticed that the coal/gas/alt energy ads on TV have started to take over for shrill ads for the various health care factions (hopefully they are all out of ad money). I'd love to believe that the energy debate will be more civil, but given what's at stake I expect an ugly, bloody fight with lots of fearmongering one one hand and false sweetness on the other. It probably won't spill out into the streets, but it should make an otherwise delightful autumn somewhat painful.
In terms of national mix, oil rigs increased by three, gas rigs increased by four and miscellaneous rigs increased by one. By rig type, horizontal rigs increased by seven, vertical increased by three and directional decreased by one.
In poking around the Baker Hughes web site, I noticed some interesting data, summarized on the chart below. It shows natural gas production from vertical, horizontal and directional wells for the past three and a half years. It's no secret that horizontal drilling is the new big thing and production in this area has increased, but what I found interesting (but not surprising) is that with the falloff in gas prices and rig count in September 2008, vertical drilling fell off a cliff and has stayed flat since. Same for directional drilling, although to a lesser degree. Horizontal wells declined but have started to pick up over the past few months. Horizontal production now represents 51% of all U.S. production.
Thursday, October 22, 2009
The divergence of gas in storage this year compared to recent history has narrowed again this week. Compared to the storage number this week last year, the percentage difference decreased to 11.9% from last week's figure of 13.8%. Compared to the five year average, the number decreased to 13.1% from last week's figure of 14.6%. The chart below shows this year's figure (red line) compared to the five year average (shaded band)
Wednesday, October 21, 2009
Normally, the spot price trades fairly close, but a little below, the NYMEX futures price, which represents the "front month" futures price (i.e. today - Oct. 21 - it's the November 2009 contract). I looked at the differential between the two since June 1, 2009. Starting in late August, the spread started to grow. It went crazy in late September with a sharp drop in the spot price and a steep jump in the futures price when the October contract was switched for the much higher priced November contract. But as the table shows below, the spot price is fighting back. The spread is still around 57 cents, but it got as high as $2.39 on October 2.
While the company's financial investment in the site was not disclosed, it is estimated to be in the tens of millions of dollars. The facility will employ 30 skilled employees drawn from the local area and will have a payroll of approximately $1.3 million.
This is a good example of economic development related to the Haynesville Shale.
Tuesday, October 20, 2009
- Annette Greene 22H #1: 14.6 MMcf/day; Bethany Longstreet Field, Sec. 22/Township 13/Range 15; Haynesville reservoir B, serial #239458
- Weathers 14H #1: 17.8 MMcf/day; Bethany Longstreet Field, S14/T13/R15; Haynesville res. B, serial #239598
- Ray P Oden Sr 35H #1: 16.0 MMcf/day; Holly Field, S35/T14/R14; Haynesville res. A, serial #239487
- A V Young 7H #1: 21.0 MMcf/day; Bethany Longstreet Field, S7/T13/R14; serial #239785
- Fingerle ETAL 25H #1: 16.6 MMcf/day; Holly Field, S25/T14/R14; Haynesville res. A, serial #239767
I have updated the LA Completions list with this data.
Looking at the futures market, the November futures price was up 7% to $5.17/MMBtu and the December 2009 futures price now stands at $5.92/MMBtu.
I won't speculate on the reasons for the sudden increases in nag gas prices - seasonal price increases, inclement weather, trader sentiment, storage, etc. - I'll just silently bask in the glow of a rising commodity price environment.
Monday, October 19, 2009
Mercury is a powerful neurotoxin, really bad stuff. Right now, coal plant emissions are only regulated at the state level. I'm a big believer in states' rights, but for something as serious as mercury, shouldn't we have a real federal policy? All this talk about regulating carbon has taken the federal government's focus away from the really bad pollution in coal emissions. I definitely want to lower our nation's carbon footprint, but I damn sure want to get rid of the mercury in the air.
You know... the easiest way to bring mercury emissions to zero would be by burning natural gas for electricity, but nobody asked me.
What is interesting in today's report is that the company hopes to expand its rig count from two to four in 2010. Preliminary estimates of 2010 capex are $180 million if the company runs three rigs and $220 if it runs four.
GMX also said that results of operating wells with greater than 4,000 foot laterals (seven wells of the eleven Haynesville wells) generally affirm the company's Haynesville decline curve and its estimated ultimate recovery (EUR) estimate of between 5. 4 and 6.5 Bcf per well.
Because of the strained drinking water aquifers in the region, the state of Louisiana has encouraged producers to seek alternative water sources for the several million gallons or so it requires to frack a well. Land owners, sensing an opportunity, have paid contractors to dig ponds to collect water to sell to producers. Other, more fortunate, landowners with existing ponds don't have to go to the expense to build ponds. The market rate for water seems to be somewhere between 25 cents/barrel and the 46 to 55 cents/barrel it would cost to truck it in. (I'm assuming a barrel is 55 gallons.)
I love America. Got a problem? Let's figure out a solution and we'll both profit.
Sunday, October 18, 2009
Last week Comstock Resources released an operational update detailing seven new Haynesville completions that haven’t hit SONRIS yet. I’m a little late publishing this because I wanted to try to tie it in with DNR data as much as possible.
- BSMC LA 17 HZ #1: 10.3 MMcf/day IP; Benson Field, DeSoto Parish, Sec. 5/Township 10/Range 14; serial #239496 (Comstock reported this in the North Toledo Bend Field, but I used SONRIS’s field name to be consistent)
- BSMC LA 5 HZ #1: 10.3 MMcf/day IP; Benson Field, DeSoto Parish, S5/T10/R14; serial #239360 (again, Comstock reported this in the North Toledo Bend Field)
- BSMC LA 6 HZ #1: 10.3 MMcf/day IP; Benson Field, DeSoto Parish, S7/T10/R14; serial #239764 (yes, all three BSMC wells tested at 10.3 MMcf/day)
- Caraway Estate HZ #3: 21.1 MMcf/day; Logansport Field, DeSoto Parish, S20/T12/R16; serial #239508
- Collins LA 15 HZ #2: 21.9 MMcf/day; Logansport Field, DeSoto Parish, S/15/T12/R16; serial #239849
- Miller Land Co HZ #1: 15.0 MMcf/day; Bethany Longstreet Field, DeSoto Parish, S11/T13/R16; serial #239798 (Comstock reported this in the Logansport Field)
- RLS HZ #1: 20.6 MMcf/day; Red River-Bull Bayou Field, DeSoto Parish, S14/T13/R13; serial #239664 (Comstock reported this in the Mansfield Field)
The Shreveport facility will target fleet vehicles only at this point. If successful, the company may venture into private vehicles.
The transaction involves gathering infrastructure from 130 wells, representing 120 miles of pipe and 22,500 hp of owned compression. GMX's subsidiary Endeavor Pipeline, Inc. will continue to operate the system. The transaction did not include salt water disposal assets or other poly pipelines.
Saturday, October 17, 2009
- Mary Harris #1, Noble Energy: 12.634 MMcf/day on 26/64" choke; Center Field, Shelby Co.
- T. Hay Swiley Gas Unit #4H, Goodrich Petroleum: 10.528 MMcf/day on 26/64" choke; Beckville Field, Rusk Co.
I usually don't report on developmental wells, but suddenly that seems silly. Here are five new wells that are going forward in Texas:
- Devon Energy: Barton #1H, Naconiche Field, Nacogdoches Co.
- GMX Resources: Mia Austin #1H, North Carthage Field, Harrison Co.
- GMX Resources: T.J.T. Simpson #2H, North Carthage Field, Harrison Co.
- Berry Petroleum: Hazel Bryne Gas Unit 3 #2H, North Carthage Field, Harrison Co.
- Anadarko E&P: Major Kennedy Estate #30 HH, North Carthage Field, Rusk Co.
Friday, October 16, 2009
In the Haynesville region of east Texas and north Louisiana, the count dropped by one, that rig being in Louisiana, to 152. The north Louisiana rig count still represents 15.0% of the total gas rigs deployed in the U.S.
Much of the presentation updated existing information, but the new data relevant to the Haynesville Shale was the update on the Bossier Shale. There is some confusion about the nomenclature. In this context, Chesapeake is talking about the Mid-Bossier Shale, the formation directly above the Haynesville Shale. For simplicity, I’ll just refer to it as the Bossier Shale today.
As the map below illustrates, the Bossier Shale overlays the southern portion of the Haynesville Shale. In Texas, it covers east Nacogdoches, north San Augustine and south Shelby Counties, while in Louisiana it covers south DeSoto, south Red River, north Sabine and northwest Natchitoches Parishes. The two slides below illustrate the overlap of the two plays and Chesapeake’s acreage (yellow is leased acreage, blue is now held by production).
In terms of geology, the Bossier Shale came about 140 million years ago, 10 million years after the Haynesville Shale. It is a smaller region because the same factors that led to the deposit of organic material that formed the Haynesville Shale were in place to a lesser degree in a more southerly location.
I’ll report later on the rest of Chesapeake’s presentation.
Thursday, October 15, 2009
The article noted a couple of utilities that opted to upgrade existing coal plants to natural gas. I like the concept, but a big part of the logic behind the decision is the belief that natural gas prices will be relatively low for the next decade. Big shale plays like the Haynesville should be able to survive and thrive in that price environment, but it might take a significant toll on conventional drilling, formerly the backbone of the industry that still supports legions of small independent producers that created today’s domestic natural gas industry.
With the emergence of shale gas, the gas industry is undergoing significant changes. An industry once populated with scores of small producers is now dominated by a few very large producers. It will be interesting to see how the little guys fare over the next decade.
This week's storage number is 13.8% higher than last year's number (last week it was 14.9% higher) and 14.6% higher than the five year trailing average (last week it was 15.1% higher). It's still trending in the right direction, but the biggest unknown is when injections will stop. Since there is little consistency in this date (it has ranged from the third week of October to the third week of November in the past five years), it's still white-knuckle-hold-on-tight time.
Wednesday, October 14, 2009
I noted the following recent Louisiana completions:
- NAC 36 H #1, Questar: 17.223 MMcf/day IP on 18/64” choke at 8,300 psi; completed August 22, Woodardville Field, Bienville Parish, Sec. 36/Township 15/Range 10; Haynesville reservoir A, serial #239751
- Ninock 35H #1, Petrohawk: 20.37 MMcf/day IP on 24/64” choke at 7,750 psi; completed August 16, Swan Lake Field, Bossier Parish, S35/T15/R11; Haynesville res. A, serial #239780
- Ninock 34 H #1, Petrohawk: 21.8 MMcf/day IP on 24/64” choke at 8,228 psi; completed August 22, Swan Lake Field, Caddo Parish, S34/T15/R11; Haynesville res. A, serial #239801
- Hearne 21 H #1, Chesapeake Energy: 4.393 MMcf/day IP at 3,197 psi (choke unknown); completed August 3, Johnson Branch Field, Caddo Parish, S21/T16/R15; Haynesville res. A, serial #239549
- Mary Belle Smith 28 #1, BEUSA Energy: 9.391 MMcf/day IP on 16/64” choke at 7,400 psi; completed May 6, Bethany Longstreet Field, DeSoto Parish, S28/T13/R15; Haynesville res. B, serial #238978
- Susie B Osby ETAL 14 #2, J-W Operating: 7.608 MMcf/day IP on 22/64” choke at 6,250 psi; completed August 12, Caspiana Field, DeSoto Parish, S14/T15/R13; Haynesville res. A, serial #239475
- Gibbs 3 H #1, Chesapeake Energy: 9.151 MMcf/day IP on 16/64” choke at 7,469 psi; completed August 25, North Grand Cane Field, DeSoto Parish, S3/T21/R14; Haynesville res. A, serial #239400 (previously listed as shut-in waiting for pipeline)
- Smithburg 7 H #1, Chesapeake Energy: 7.923 MMcf/day IP on 14/64” choke at 7.923 psi; completed August 28, Red River-Bull Bayou Field, DeSoto Parish, S7/T13/R12; Haynesville res. A, serial #239228 (previously listed as shut-in waiting for pipeline)
- Billingsley 35 #1, EOG Resources: 11.563 MMcf/day IP on 28/64” choke at 4,600 psi; completed July 23, Trenton Field, DeSoto Parish, S35/T12/R13; Haynesville res. A, serial #239599
The Louisiana Completions Database is updated with this information.
Tuesday, October 13, 2009
- AT&T announced plans in March 2009 to deploy 8,000 CNG service vehicles over the next ten years. In total, the company will deploy a total of 15,000 alternative fuel vehicles.
- UPS added 300 new CNG delivery vans to its fleet in February 2009. With the additions, the company now has a total of 1,891 alternative fuel delivery trucks, approximately 1,100 of which are CNG. The new CNG trucks are located in California (111), Oklahoma City (100), Atlanta (46) and Denver (43).
- The Dallas Area Rapid Transit (DART) is considering buying 594 new compressed natural gas (CNG) buses to replace a portion of its aging fleet and building three new CNG fueling stations. The article linked above gives the political back and forth that reminded me, chillingly, of a few years I spent as a consultant to a quasi-dysfunctional municipal board, but the point is that another city in the heart of gas country looks to be supporting natural gas with action rather than words.
- Phoenix Beverages, a New York Budweiser distributor, is planning to convert 20 of its 150 fleet delivery trucks to CNG with grant help from Clean Cities, a DOE public-private partnership to reduce petroleum consumption. The funding came from the federal stimulus package approved earlier this year. The number of trucks converted is not a huge number, but it's exactly the kind of project that helps seed CNG. You build a few CNG stations and early adapters can buy CNG vehicles. That supports more stations, which supports more vehicles, and so on and so on.
- Another New York beer distributor, Manhattan Beer Distributors, completed a CNG conversion for 45 of its trucks earlier this year.
The rules call for producers to identify the source of the water used, be it from an aquifer, pond, river or other source, and note the quantity of water used.
Also being considered is a three parish (Caddo, Bossier and DeSoto) study of aquifer water quality through approximately 1,000 water wells. The study hasn't been approved by all three parishes, but given the risk to the drinking water aquifers, a baseline study would be money well spent by local governments. If approved it likely would take place in 2010.
It doesn't sound like much, but in the information age, the reporting of detailed data allows the people who actively follow an issue to be better informed. It also puts producer on notice that they are being watched, both by the government and interested citizens.
I've been reading a great deal about the Marcellus Shale lately, and people are going nuts over the water quality issue. There is a great deal of fear about fracking and the potential environmental damage. The battles are being fought at the local level in numerous communities, especially in Pennsylvania and New York. The issue might delay shale gas development in certain areas for a while. It's kind of ironic to hear the hew and cry from Pennsylvania, one of the top three states in terms of active gas wells and the state where oil and gas drilling first started 150 years ago.
The link above should play the video (including a commercial for Viagra!). Here is a link to a written story and another link to the video.
Coal ash is a byproduct of burning coal. Approximately 130 million tons of coal ash is generated, containing significant amounts of the following chemicals: arsenic (43.4 ppm); barium (806 ppm); beryllium (5 ppm); boron (311 ppm); cadmium (3.4 ppm); chromium (136 ppm); chromium VI (90 ppm); cobalt (35.9 ppm); copper (112 ppm); fluorine (29 ppm); lead (56 ppm); manganese (250 ppm); nickel (77.6 ppm); selenium (7.7 ppm); strontium (775 ppm); thallium (9 ppm); vanadium (252 ppm); and zinc (178 ppm) (source: wikipedia).
The vast volume of coal ash creates a disposal problem. Clearly storing massive quantities is not a great solution as the folks downriver of Kingston found out. The 60 Minutes story delves into a golf course that used recycled coal ash in its construction and the class lawsuits that have followed. Coal ash disposal is regulated on a state-by-state basis. One of the unanswered questions is whether or not the EPA will step in and create federal guidelines for the disposal and/or designate coal ash a toxic waste product. Given the coal lobby's strength in Washington, I doubt you'll see it designated as toxic waste, but the is the EPA and not Congress, so there is a chance it will happen.
Generally I find 60 Minutes and similar shows to be a little hysterical and one-sided, but the basic story behind the drama is worth considering. Coal, which generates just under half of the electricity used in our country, is responsible for water pollution and other environmental damage when it is mined, air pollution when it is burned and large quantities of quasi-toxic ash as a physical byproduct. If it weren't for the Kingston accident, the general population never would have heard about coal ash. Great stuff, this coal.
Monday, October 12, 2009
Saturday, October 10, 2009
I noted the following recent Bossier/Haynesville completions in Texas:
- Rosborough #1H, Chesapeake Energy: 15.744 MMcf/day IP on a 22/64” choke; North Carthage Field, Harrison Co.; Bossier Shale
- Harper #1H, Chesapeake Energy: 15.936 MMcf/day IP on 22/64” choke; North Carthage Field, Harrison Co.; Bossier Shale
- Hull Unit #A 118-H, Devon Energy: 2.323 MMcf/day IP on an adjustable choke; North Carthage Field, Panola Co.; Bossier Shale
- Red River 619 #1, Common Resources, LLC: 16.669 MMcf/day IP on 24/64” choke; Bossierville Field, San Augustine Co.; Bossier Shale
- Gammage #1, EOG Resources: 2.395 MMcf/day IP on 19/64" choke: North Carthage Field, Nacogdoches Co.; Bossier Shale
Friday, October 9, 2009
But the above shouldn't be a surprise looking at the large increase in Haynesville area rigs. The Haynesville area, which includes some other formations, was up by nine rigs, all in north Louisiana, to 153. With this surge, North Louisiana now represents 15.0% of all U.S. gas rigs, up from 14.0% last week.
Thursday, October 8, 2009
To put this in context, last Friday the price was $2.32. That's an 83% increase in six days. If you had somehow been able to buy gas on the spot market at Friday's close and sell it at today's close that would be a time weighted return of 984,330,241,730,150,000%. That would have been a good investment.
With the release of the storage numbers today, I think the market has figured out that we will not run out of storage space. The injections for the past month have been in the mid-60's (Bcfs) and there will probably be enough capacity before the withdrawals begin. The spread between the front month futures price and the spot price has narrowed to about 17%. By comparison, it stood at 130% last Friday.
In case you're wondering, the spot price hasn't been this high since May 12, 2009, and that was only for a single day. The price hasn't been sustainably above $4.25 since mid-February 2009. Just in case you think this is an indication we're "Goin' to 10!" I'd hold off on the celebration. The price likely won't exceed the front month futures price, which is currently trading around $4.96. The December contract is trading around $5.77 and the January 2010 contract is about $6.07.
As I watched a plume of smoke turn into a cloud that floated over the river, I thought of the chemicals in that cloud and how I wouldn’t want that cloud to hover over my house (or the source for my drinking water). I briefly envisioned a world without coal-powered electricity but realized that would never come to fruition. (As I’ve said before, I believe in a “portfolio solution” to our energy future where many fuels power the future, but sometimes I get a little rah-rah about natural gas at the expense of coal.)
Today I found myself reading Metropolis Magazine, a design mag targeting architects. There was an interesting article about a former coal-fired plant in South Africa that had been turned into office and public space. It got me thinking about all of those plants I saw with those wonderful river views. Sure they will be horrific brownfield sites if they are shut down, but they sure would make great adaptive reuses into office, retail, residential and public spaces.
Wednesday, October 7, 2009
There was a lot of completion activity reported by the Louisiana DNR this week.
- Clark ETUX 7 H #1, KCS Resources (Petrohawk): 20.358 MMcf/day IP on 24/64” choke at 7,774 psi; Elm Grove Field, Bossier Parish S5/T15/R11; Haynesville reservoir A, serial #239948
- Weyerhaeuser LA HZ #1, Comstock Resources: 16.186 MMcf/day IP on 28/64” choke at 5,786 psi; Belle Bower Field, DeSoto Parish, S21/T13/R16; Haynesville res. A, serial #239663
- Crnkovic 27#1, J-W Operating: 12.5 MMcf/day IP on 24/64” choke at 3,500 psi; Caspiana Field, DeSoto Parish S27/T15/R13; Haynesville res. A, serial #239248
- Chaffin ETAL 34 H #1, Chesapeake Energy: 10.195 MMcf/day IP on 16/64” choke at 8,176 psi; North Grand Cane Field, DeSoto parish, S34/T13/R14; Haynesville res. A, serial #239594
- Meredith ETUX 36” #1, Petrohawk: 13.718 MMcf/day on 24/64” choke at 6,849 psi; North Grand Cane Field, DeSoto Parish, S25/T13/R14; Haynesville res. A, serial #239709
- Ben H Land 17 H #1, EnCana: 8.739 MMcf/day IP on 13/64” choke at 8,064 psi; Holly Field, DeSoto Parish, S17/T14/R14; Haynesville res. A, serial #239600
- Holoubek Fly LLC 28 #1, Exco Resources: 13.756 MMcf/day IP on 20/64” choke at 6,841 psi; Holly Field, DeSoto Parish, S28/T14/R13; Haynesville res. A, serial #239580
- AT&N Martinez 11 #1, Chesapeake Resources: 6.419 MMcf/day IP on 22/64” choke at 4,668 psi; Logansport Field, DeSoto Parish, S11/T11/R15; Haynesville res. A, serial #239287
- Ninock 6 H #1, Petrohawk: 25.467 MMcf/day IP on 28/64” choke at 8,691 psi; Red River-Bull Bayou Field, Red River Parish, S7/T13/R10; Haynesville res. B, serial #239468
- Nabors Logan 27 H, Chesapeake: 2.539 MMcf/day IP on 6/64” choke at 8,261 psi; Pleasant Hill Field, Sabine Parish, S27/T10/R12; Haynesville res. A, serial #239443
- Dixie 31 H #1, Chesapeake Energy: 9.216 MMcf/day IP on 22/64” choke at 7,256 psi; Bethany Longstreet Field, Caddo Parish; S31/T15/R15, serial #239735. Chesapeake self-reported the IP at 14.4 MMcf/day and the pressure at 6,600 psi.
- Bohnert 28 H#1, Chesapeake Energy: 3.165 MMcf/day IP on 18/64” choke at 2,237 psi; Longwood Field, Caddo Parish; S28/T19/R15, serial #238486. Chesapeake self-reported the IP at 7.5 MMcf/day on 16/64” choke at 5,300 psi.
- Branch Ranch 31 #1, Exco Resources: 421 Mcf/day on 6/64” coke at 2,200 psi; Caspiana Field, DeSoto Parish; S31/T14/R12, serial #238250
The above additions and changes are reflected on the lists of Louisiana completions. I also went back and updated some completion dates and other data gaps for wells for which I previously reported partial information.
Tuesday, October 6, 2009
Monday, October 5, 2009
Mr. Berman's contention is that the steep decline rates lead to low estimated ultimate recoveries (EUR) and that the type curves projected by the producers are too optimistic. Ultimately, he contends, producers are overstating their reserves. That's a big no-no, as a few companies found out a few years ago. This position stands in direct opposition to the published reports by producers, which are sticking with their curves and EUR estimates (and of course their reserve estimates). Who is right? I'd love to know.
The post is filled with technical information that mostly is over my head, but it is still worth reading. It also includes brief summaries of some of the good technical presentatioins made at the recent symposium.
Put the neck brace on and settle in for a volatile month.
Sunday, October 4, 2009
I noted the following Haynesville completions in Louisiana this weekend.
- Johnson 10H, Chesapeake Operating: 10.268 MMcf/day initial production on 18/64" choke at 7,500 psi; Bethany Longstreet Field, DeSoto Parish; serial #238486 (previously reported by a Goodrich Petroleum press release at 17 MMcf/day at 22/64" choke)
- Cowley 2, J-W Operating: 12.0 MMcf/day IP on 24/64" choke at 4,500 psi; Elm Grove Field, Bossier Parish; serial #239245
- White 16 #2, Palmer Petroleum, Inc.: 10.903 MMcf/day IP on 20/64” choke; Caspiana Field, DeSoto Parish; serial #239267
- Bobby Dyson 21H, EnCana: 6.994 MMcf/day IP on 19/64” choke; Caspiana Field, DeSoto Parish; serial #239783
- Broome HZ, Comstock Oil & Gas: 15.981 MMcf/day IP on 30/64” choke; Belle Bower Field, DeSoto Parish; serial #239289
- Renfro ETAL 14, Petrohawk Operating: 7.643 MMcf/day IP on 14/64” choke; Red River-Bull Bayou Field, DeSoto Parish; serial #239306
- Blackstone ETAL 23H, Chesapeake Operating: 3.764 MMcf/day IP on 18/64” choke; Logansport Field, DeSoto Parish; serial #239373
- LP Ware Farms 22H, EnCana: 17.611 MMcf/day IP on 20/64” choke; Bracky Branch Field, Red River Parish; serial #239622
- Connie Grzesiek 8H, EnCana: 10.771 MMcf/day IP on 13/64” choke; Woodardville Field, Red River Parish; serial #239667
Get used to that sensation. October will be a hellish month if you are dependent on the spot or wellhead price of gas. The storage situation is going to make life rough. Because storage in the Producing Region is just about full, it makes the logistics of moving gas a little more difficult. I've also read that some storage companies are starting to decline new gas, holding a few spots for later injections. It must be a terrible feeling for a producer to be denied storage - sort of like being at a restaurant when the maitre d' telling you to keep waiting when you see empty tables.
There is a glimmer of hope: revised weather outlooks suggest winter temperatures 5-10% below normal.
- Holt 1H, GMX Resources: 9.57 MMcf/day initial production on 26/64" choke; North Carthage Field, Harrison Co. (Bossier Shale). This well was reported by GMX around August 10 of this year with slightly different stats. This information what the company reported to the Texas Railroad Commission.
- Garret Heirs #3, Valence Operating: 1.481 MMcf/day on 14/64" choke; North Carthage Field, Harrison Co. (Bossier Shale). Based on its drilling depth, I believe this is a vertical well.
Friday, October 2, 2009
I've read some articles with people saying that gas could go to zero until the storage issue is resolved. I don't think that will happen. If gas is super cheap for a month, it will be snapped up by electricity producers. They will turn down their coal plants and burn lots of cheap gas. That should keep it above zero. Where the equilibrium lies, I don't know, but I suspect it is below $2.32, so buckle up tight and don't expect big royalty checks in January when your Christmas credit card bills arrive.
Man, I wish I had the wherewithal to buy lots of natural gas at $2.32 today and then sell it on October 29 (the day the November contract expires) for $4.71. That quick doubling of your money would imply an internal rate of return of 1,436,677%! Of course, you’d have to find some place to store that gas for a month.
I've been reading a lot about concerns that many people have about fracking. Because a very small percentage of the content of the frac water has scary sounding chemicals, many people, both landowners and environmental-types, have objected to the fact that the process is not regulated. The fear is that the chemicals will leak into groundwater.
If you believe the hyperactive environmentalists, you will think carcinogens are being pumped by the truckload underground. If you believe the industry-types, you will think that the chemical contents are no different than those in household products.
The "Energy in Depth" web site has a good section on fracking. (Note that EID is an industry site, so it has a bias, but it does present the facts well.) It goes into depth on the specific details of fracking, and one of the components is the graphic on the right, which breaks down the contents of most fracking fluid.
There was a good (long) article in yesterday's New York Times on the subject of fracking and the proposed statewide legislation concerning gas drilling in New York. The state of New York has been under the most pressure to regulate anything and everything concerning ground water in anticipation of wells for the Marcellus Shale being drilled there. The Holy Grail is the watershed for New York City, which is a large portion of upstate New York. It will be well protected.
I noted in a post on Tuesday that several producers are calling for greater transparency about the proprietary contents of frac water. I thought about that some more. It's easy for the producers to call for transparency. It's not their products that are proprietary. The producers may not want to admit their own secret sauce, but that's much more involved than the frac water and includes completion design, type and quantity of proppant, etc. They look like heroes calling for their suppliers to be more forthcoming.
As I've said in the past, the risk from fracking comes at the surface. All contamination accidents that I've heard involve surface spills. I think greater transparency on the issue will help the industry, but so will the recognition that the handling of the materials is the real issue.
In the Haynesville Shale region of NE Texas and NW Louisiana, which includes other formations, the rig count dropped by six to 144. The count was down three each in Texas and Louisiana.
Thursday, October 1, 2009
I've been asked several times why I follow the Henry Hub spot price. What most people see and hear quoted is the front month NYMEX futures price (today: down 7.7% to $4.47). Futures prices are an easy number to quote because futures contracts are actively traded and their prices are reported in real time. Henry Hub prices are usually only reported once per day in the late afternoon.
I look at the spot price because I believe it is a good proxy for wellhead price, on which royalties are based. I looked at monthly information from the Energy Information Agency from January 2008 to compile the chart below, which shows that the Henry Hub spot price is pretty well correlated with wellhead prices, especially over the past 14 months.
The lower storage injection is also the result of more gas being used in electricity production. I recently read a report that showed gas at these prices is more economical than coal to burn for electricity, which has led to some switching. The increased use in electrical power is helping make up for the significant decrease in industrial gas use, which is down 19% YTD. The chart below shows the industrial gas use versus the five year average.
Going forward, there is going to have to be a lot of switching given the gas industry's newfound ability to produce prodigious quantities of gas, or else the gas industry constantly will be bumping up against storage constraints, which will keep prices low.
Unfortunately, the gas storage news seems to have put a dent into gas prices today. As of this moment, the "front month" futures contract (November) is down 7.5% to $4.48.